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Many business owners recognise their staff to be their most valuable asset and invest an enormous amount of money in retaining them. But what would the financial impact on the business be if a key staff member dies or becomes permanently disabled? How can the business protect itself? The solution for the business is to take out keyperson insurance on the lives of these key employees. The need: Being in business means that business owners must accept a certain amount of risk. Key person insurance is an effective method of transferring the financial risk related to the loss of key employees to an insurance company. Key person insurance also provides contingency capital to fund the costs of recruitment, retraining and replacement of a key person. Without key person insurance, the following serious implications could arise for the business on the loss of such a key employee: Profits may be affected temporarily or permanently. Clientele may be lost. The creditworthiness of the business may be negatively affected. Huge recruitment and training costs will be incurred.

The solution

Where key employees contribute substantially to the success of the business, the business can take out insurance on the lives of those people. Should a key person then die or become permanently disabled, the business would receive the policy proceeds and could use it to offset the loss of profit or expenses associated with the loss of that person's contribution to the business. The value of the life cover should represent the value of the key employee to the business in monetary terms. If the key employee dies or becomes permanently disabled, the business receives the policy proceeds that it then utilises to reduce the financial strain on its cash flow and profits. The benefits: With keyperson insurance, business owners have peace of mind knowing that the business will survive the loss of a key person, as they have provided immediate capital for the business. The plan also makes financial sense because the monthly cost is very small in relation to the benefit. Key person insurance offers the following specific benefits: The policy proceeds will cover the costs of recruiting and training a new employee. The business replaces any loss of income and profits. The creditworthiness of the business remains intact. Directors' loan accounts can be repaid.
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